Investors’ Outlook: Revving up

Revving up

Investors have been running on optimism since the summer, but the US Federal Reserve’s (Fed) first interest-rate cut of the year has given markets the extra horsepower to shift up a gear.

The Fed opted for a reduction of a quarter percentage point, weighing the trade-off between stubborn inflation, which has risen recently, and signs of a weaker-than-expected labor market after some large downward revisions of payroll data.

Since Liberation Day, inflation and job growth have moved in different directions, which presented a dilemma for the Fed. In the end, it was the latter that swayed policymakers. Chair Jerome Powell acknowledged the downside risks and said he could no longer describe the labor market as “very solid”¹. Investors had already priced in the likelihood of more easing ahead of the decision, which the Fed confirmed in its dot plot², projecting another half-point of cuts by year-end and a quarter-point more in 2026.

Other drivers are also in place. Database software giant Oracle’s reported a massive jump in cloud infrastructure revenue and in its backlog of contracts and announced USD 35 billion in capital expenditure plans for its current fiscal year for data centers and infrastructure. High-profile partnerships in artificial intelligence (AI), like with ChatGPT operator OpenAI, also added tailwind. This shows how Big Tech’s massive spending spree is feeding into the broader economy.

Markets face what we consider a pretty compelling setup. Beyond the technology sector, which has helped push US equities to record highs recently, broader corporate and consumer spending is continuing. Various stimulus measures are also in play, like in Europe, or expected, especially in China, where policymakers may be eyeing ways to support the weakening economy. And even if the global economic growth is below its long-term trend, it’s been recovering and moving away from a recession. Coupled with major central banks in developed markets leaning toward easing, we believe these are positive signals for the global macroeconomic picture – and hence, that markets are likely set for a risk-on stance.

Even against this backdrop, lingering concerns about debt sustainability, fiscal deficits, and the ongoing loss of confidence in fiat currencies³ mean that portfolio stabilizers like gold continue to do well. We believe it’s important to be selective and active in terms of equity exposure.

In this Investors’ Outlook, we take a look at the imbalances that are prevalent in the global economy, such as in trade, consumption, and manufacturing. You’ll also be able to read up on precious metals and our take on the stock market.

We aim to help our clients press the accelerator with insight and perspective on what may lie ahead.